Monica Roberts is in an emotional and financial quagmire. It no longer makes financial sense for her to keep the one-bedroom flat that she owns and rents out in Bath, but she has had the property for 18 years and views it as her anchor to the UK.
Roberts, 55, moved to France 13 years ago with her husband to launch a painting holiday company, Painting-in-France.com. They are happy there, and have always liked having the flat as a foothold in the UK property market to make it easier if they were ever to move back.
But rising mortgage rates have made keeping the flat near impossible. Roberts has a £162,000 mortgage on the property, and the monthly payment has increased from £116 to £830 a month in the past year and a half.
“It’s taken a lot to get my head round possibly selling it,” she said. “I considered selling it when interest rates first started going up, but I wasn’t ready. The emotional attachment was too strong.”
Roberts rents out the property for £950 a month, but after the estate agent fees and ongoing maintenance costs, the flat is costing her money to run.
She said: “It’s no longer wiping its own nose, and I’m aware that rates may go up further and there is likely going to be more maintenance needed on the property. It’s really sad, it feels like our ties to the UK are becoming less and less.”
Roberts is far from alone in feeling the pinch. Over the past two years, the Bank of England has gradually increased the base rate from 0.1 per cent to 5.25 per cent today as it tries to lower inflation.
This feeds through to the interest rates landlords are paying on their mortgages, with rates for landlord mortgages higher than regular ones. The average two-year buy-to-let mortgage is now 6 per cent, compared to 2.9 per cent two years ago and 3.06 per cent five years ago, according to the data company Moneyfacts.
This is a huge change. A landlord with a £300,000 mortgage who was coming off a five-year fixed loan today and refixing for five years would see their monthly costs jump from £875 to £1,485.
If they were moving from two-year deal to two-year deal, it would rise from £725 to £1,500. Any landlords on a tracker mortgage will feel the effect of each base rate rise.
Roberts is not the only landlord thinking that the numbers simply no longer add up. According to a survey from Simply Business, around a quarter of landlords are planning to sell a property over the next 12 months, and almost one in 10 have sold a property in the last year.
Should the average rate changed from 2.5 per cent to 5 per cent, their annual interest bill would jump from £45,000 to £90,000.
Take Neil France. He owns four family homes on the Wirral as well as some houses of multiple occupancy (HMOs) in Chelmsford, Essex. Some of the mortgages on the properties have already moved onto higher rates, pushing up his annual mortgage bill from £40,000 to £65,000.
“I went to see all the tenants and explained that we had to put the rent up. We hadn’t put it up for five years,” said France, 66, from Essex.
“I’ve only increased each rental by £100 a month even though the mortgages are up about £400 a month. It’s nowhere near covering me but I can’t put the full mortgage cost increase on them — I can’t do it to them. We’re all reeling from this ridiculous increase in living costs.”
France, who works in leadership sales training, became a landlord “on the side” in 2009 when he realised that his pension was not going to support him in retirement.
However, a string of tax and regulation changes have made it increasingly difficult to run his property portfolio.
“The changes have devastated returns. It wasn’t too bad until the interest rates started going up as well, but now we’re being completely hit,” said France. “Thousands of landlords are saying ‘I’m done’.
“There’s a couple who want to rent our place now because their landlord is selling up. When we first went into this business, there were five or six pages on Rightmove of similar properties to rent in the same area. Now there are only three — and not pages, three properties.”
Landlords say that a catalogue of changes over the past seven years have made it less profitable, and in some cases unviable, to be a landlord.
Before 2016, landlords could deduct their mortgage payments from their rental income before they paid tax. For example, if you made £15,000 in rental income but paid £10,000 in mortgage costs, you would only pay tax on £5,000.
Now, landlords are unable to deduct their mortgage expenses and instead get a “tax credit” based on 20 per cent of their mortgage interest payments. It means that any landlords who are higher- or top-rate taxpayers pay significantly more tax on their rental income.
Landlords also used to be able to take 10 per cent off their rental income for “wear and tear”, but now they can only claim for any actual costs that they incur.
“Over the past few years, low mortgage rates have shielded landlords from some of the tax changes that are now pushing landlords into staggering tax rates,” said Chris Norris, campaigns and policy director at the National Residential Landlords Association.
“An awful lot of landlords are now just bouncing around breaking even and are trying to make decisions about what to do with the future.
“We’re seeing lots of landlords sell one of their properties and use the money to pay down the debt on others, or not buying more properties when they otherwise might have done.”
France has been on a “knife edge” about whether to start selling some properties, but has decided to stay a landlord until he retires. If he sells while he is still working, the money will push him into a higher tax bracket for capital gains tax and he will lose about 50 per cent of any profit made on the properties.
“I can’t be working beyond 70, so I’ll keep doing it for now. Sometimes I want to just sell up, though.
“For instance, I just went away for work and did a massive project in Azerbaijan, but the money I made doing that was less than I spent on doing up one of the houses a tenant had completely wrecked,” said France.
“We’ve had such anti-landlord rhetoric and I know there are some who are absolute toerags, but people need to recognise it is a risky business, and you need to make a good return for when a boiler breaks, or a tenant ruins the property.”
For Roberts, her time as a landlord is nearly over. Her flat in Bath has just been put on the market, and her tenant is leaving in January.
“Over the years there’s been such a big push, and now it’s so much to the detriment of the landlord that it’s just become a nightmare to own an investment property,” she said.
“I’m anticipating that there will be more work and maintenance needed on the property too — that’s fine if you’re making money from it, but not if you’re not.”
This article has been amended as the original version wrongly stated that a property needed to have an EHC rating of C or above to comply with regulations, when this has been abolished.